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By LIZ PULLIAM WESTON
As Credit Crunch Pinches Profits, Card Issuers Raise Rates
Dear Liz: My wife and I were bombarded with offers for special credit card rates. Now, for absolutely no reason on our part, our credit card issuer has notified us that the rates on our accounts are about to skyrocket from 1.99 percent and 3.99 percent to the prime rate plus 23.99 percent, or nearly 30 percent. The issuer also lowered our credit limit to equal our balance. I'm not aware of any derogatory information on our credit reports that could explain this change. We initially used the low rates for purchases on which we could have gotten a fixed-rate, conventional loan.We will be closing the accounts and asking that the former terms be upheld until the account is paid. But what else can be done? We have been excellent account holders with excellent payment records. Can the government keep this from happening? And if so, how?
I feel sorry for those others who may feel trapped into paying the higher rates. I assume the issuer did this as a result of the credit crunch, and I also assume it will lose customers in droves.
Answer: Credit card issuers in recent months have been jacking up rates on customers as the credit crunch pinches lenders' profits. Although massive rate hikes aren't unusual in the credit card world, what is unusual is that this time the issuers are targeting folks who have good credit and who haven't done anything specific, like miss a payment, to warrant the sudden increase.
Some people have found that they can get their issuers to rescind the rate hikes simply by calling and pointing out their good credit history.
Others have had to do what you've done – request that the account be closed and that the previous rate be honored while they pay off the balance. There's no federal law requiring that credit card issuers comply with these requests, but in practice many do.
The Federal Reserve and other banking regulators have proposed changes that would prohibit this kind of "retroactive rate hike." (It's retroactive because you would be paying a higher rate on a balance that you built up assuming your rate would remain low.)
The new rules would ban rate hikes on existing balances unless a consumer was 30 days late on the account. Banks also would be prohibited from retroactively raising rates on good customers for problems discovered while cruising their credit reports, such as a late payment on another account.
You can find more details on the proposed changes and a form to submit comments on the Federal Reserve's website at www.federalreserve.gov. Look under the "News & Events" tab for the May 2 press release on unfair credit card practices.
The banking industry has vowed to fight these changes, along with similar but more far-reaching changes proposed by Congress, including the Credit Cardholders' Bill of Rights (HR 5244) proposed by Rep. Carolyn B. Maloney (D-N.Y.). If you want credit card companies to be reined in, now is the time to make yourself heard.
Dear Liz: I had a comment on your recent columns on paying for college. Many people aren't aware that large companies often offer tuition reimbursement programs. Some will pay for you to get advanced degrees in virtually any field you want, while others require that you major in a field related to your work.
I know a man who is now working as an assistant vice principal in a high school thanks to a degree paid for by his former employer, a bank. It took him 10 years, but the bank had a loyal employee for that decade.
Answer: You're quite right: Tuition reimbursement is an incredibly valuable benefit that should be explored by anyone who wants to continue his or her education.
Dear Liz: Our son, while working in
Answer: Your son should ask the agency to validate the debt – in essence, to provide proof that he owes it and that the agency is authorized to collect on the account.
Then he should pay off the debt and retain the proof that he's done so (such as the canceled check or a letter from the agency showing the debt has been paid).
The payment probably won't help his credit scores, which probably have been trashed by the incident, but payment could keep this from turning into a court case that could further damage his credit standing.
By the way, his excuse is a little thin. Although bank employees can certainly tell customers stupid things, it's hard to imagine one that would advise ignoring a problem like overdrawing an account.
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© 2008, No More Red Inc. Liz Pulliam Weston is author of the new book “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life.” She regrets that she cannot respond personally to inquiries, but questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., #238, Studio City, CA 91604, or use the “Contact Liz” form at her website, www.lizweston.com.
